Friday, March 12, 2010

A century of systematic innovation: My favorite milestones (Part-2: 1926 to 1975)

In a previous article, I wrote about how the method of innovation has evolved over the past century. In a three part series I am writing about my favorite milestones in this journey. These milestones are not necessarily the first occurrences but they are more representative of how the method of innovation has evolved. In many cases the milestone would have catalyzed what was to happen in future. This article is the second of the three parts. Check the first part here (includes a picture).

· IBM’s Future Demands Department (1929): Corporate research departments mushroomed during the first quarter of the 20th century. Over a period the companies realized that it is not sufficient to have scientists and technologists doing futuristic work. There is a need to marry the outcome with existing and new market demand and create new products and services. This needed a cross-functional view of technology and marketing. That was the birth of innovation departments, sometimes called “New Product Development”. IBM went the reverse way. Thomas Watson Sr. founded Future Demands Department in 1929 and Watson Jr. founded IBM’s corporate research department later in 1956. (source: The Watson Dynasty by Richard Tedlow)

· Graham’s “Margin of safety” (1934): Innovation is risky; sometimes the damage can cripple you forever. How do you systematically prepare yourself for the “unforeseen” events? Graham and Dodd were the first to address the question squarely in a seminal book “Security Analysis”. Graham-Dodd applied the idea of “Margin of safety” to stocks and bonds. However, it is of universal importance as far as systematic innovation is concerned. Graham’s disciple Buffett popularized it further. It took a new shape in Nassim Taleb’s Black Swan this decade. (see: Pre-mortem, Margin of safety)

· Schumpeter’s “Creative destruction” (1942): When all economists were in love with the equilibrium theory and the elegant mathematics, Schumpeter advocated “disequilibrium” as the core of capitalism. He made “innovator” the hero and “creative destruction” his achievement. He wrote that all firms must try all the time “to keep on their feet, on ground that is slipping away from under them" He also strongly advocated the need for “venture capital”. Schumpeter identified the two chief villains in the story of innovation: resistance to change and prediction disability. He also said that innovation itself is primarily “a feat not of intellect, but of will … a special case of the social phenomena of leadership”. (source: Prophet of innovation by Thomas McCraw)

· 3M’s 15% rule (1945): 3M introduced a rule called “15% rule” in 40s (I don’t know the exact year). It was equivalent of two daily coffee breaks plus lunch time. Most people misunderstand the rule as “bonus time”. It is actually a “permission to experiment without having to tell your boss”. Most of the time it amounts to working “115% of the time” i.e. you do your experiments in your extra time. Google popularized it as the 20% rule. (Source: A century of innovation: The 3M story book).

· Toyota suggestion system (1951): After returning from a visit to Ford’s River Rouge, Toyoda-san implemented the “continuous improvement” process, popularly called kaizen at Toyota factory. From 1951 Toyota started encouraging and monitoring creative ideas from shop floor employees. Starting with 789 ideas in 1951 with idea per person at 0.1, the run-rate increased to 2 million ideas in 1986 with 48 ideas per person per year. (See: 40 years, 20 million ideas: The Toyota suggestion system)

· Everett Rogers’ Diffusion of innovations (1962): In his seminal work Diffusion of innovations, Everett Rogers defines diffusion as the “process by which an innovation is communicated through certain channels over time among the members of a social system.” It could be a best practice spreading in your organization or a new product like mobile phone spreading in a country or a city. Adoption of ideas follows an s-curve when plotted over time. The categories of adopters Rogers identified are: innovators, early adopters, early majority and laggards. Geoffrey Moore popularized this terminology further in his book “Crossing the chasm”. (source: wikipedia Diffusion of innovations).

· Venture capital industry (Sequoia Capital) (1972): In 1972 two of the most successful venture capital funds were founded in Silicon Valley: Sequoia Capital and Kleiner Perkins. The VC industry would constitute one of the key elements of the innovation ecosystem that will make Silicon Valley innovation capital of the world. (Wikipedia sequoia capital, Kleiner Perkins, history of venture capital).

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